It’s a race against time for Srei Group, a Kolkata-based infrastructure and equipment financier.
The crisis-ridden group has asked lenders to approve a much-needed debt recast and has knocked on the doors of the Reserve Bank of India, the regulator, to seek clearance to get a clutch of investors on board.
Srei’s finances took a hit due to Covid-19 and it had earlier secured a moratorium on loans from the National Company Law Tribunal in Kolkata.
However, the lenders are waiting for the outcome of a forensic audit before deciding on restructuring the group’s debt, estimated at Rs 28,000 crore. Of this, around Rs 18,000 crore is exposure of banks and remaining other creditors. Srei Group said it is confident of raising capital after the debt recast.
“We expect the capital to be raised post-realignment of debt with banks. We are confident of raising the capital,” Srei Group said in an email response to Moneycontrol on September 14.
Investors line up
Eleven global investors including Arena Investors, are said to have expressed interest in group company Srei Equipment Finance. Subsequently, the company received non-binding term sheets from Arena Investors and Makara Capital Partners.
“The company has forwarded this to the lenders and the RBI for approval,” the group said. “As soon as we receive the necessary approval of the creditors either on the schemes proposed by us or modified by them, the application for realignment of debt with the honourable tribunal will be taken forward.”
Srei owes about Rs 28,000 crore to lenders and banks including Axis Bank, Uco Bank and State Bank of India.
According to people aware of the matter, Srei is optimistic that banks will move ahead with the restructuring plan after the forensic audit is completed.
An RBI special audit team had scrutinised its books in December-January, after which the regulator had asked Srei to shore up its provisions.
Srei’s top brass is keeping their fingers crossed. There are hurried efforts to raise survival capital. The group is hopeful of a recovery and expects the first tranche of capital to come soon, said one person aware of the developments.
“There will be actual investments coming in a month’s time—at least a couple of hundred crores. This will be the first tranche. There is a process ongoing,” said the person.
Even the prospective investors are waiting for the results of the forensic audit and the RBI’s approval on the fit and proper criteria, the person said. The forensic audit report will be submitted to Srei’s committee of creditors who will assess it for future steps.
Grip of lenders
Srei’s lenders are tight-lipped on the future course of action.
“Lenders ultimately want their money back. It is too early to comment on what can happen at this point,” said a banker on condition of anonymity.
At this point, it’s not business as usual at Srei Group and the mood is one of uncertainty.
Lenders, in a bid to get their money back, are keeping a strict check on cashflows and pre-authorising every payment including salaries and other statutory expenses. A cap on some salary payments had caused disquiet in the senior leadership team.
Since December, when lenders took control of the finances and capped the salaries of executives, at least 250 of Srei’s 1,500-strong workforce have exited from both the senior and the middle levels.
Sandeep Kumar Lakhotia resigned as company secretary and compliance officer of Srei Infrastructure Finance on March 20. A month later, SREI Equipment Finance chief operating officer Pavan Trivedi quit. On 14 September, Moneycntrol reported that Srei Infrastructure Finance Chief Executive Officer Rakesh Bhutoria has resigned.
Although the caps on salaries were lifted in April 2021, the arrears still need to be paid, Srei Group said.
“We have requested the bankers to release the amount for paying arrear salaries… It is unfortunate that many executives have left and are leaving. We are trying to retain them, but as the control of the cashflow remains with the bankers since November 2020, we can only request our employees to stay with us,” Srei Group said in its response.
Why Srei is in Trouble
Srei has been beset by problems in the recent past and had its ratings cut to junk grade by two rating companies.
The NBFC said it faced significant stress due to the pandemic, which hampered the recovery of money from businesses that were hit hard by the slump in activity.
About 60 percent of the businesses that borrowed money from Srei approached the company to restructure the loans due to the financial stress caused by the pandemic, a company official told Moneycontrol in March.
Srei also found it hard to get back money it had lent to others and this in turn affected its own repayments to lenders.
The financier had approached the National Company Law Tribunal bench requesting a moratorium on coupon payments and postponement of redemption dates until a proposed merger of two group companies was complete.
Srei received a favourable verdict from the NCLT in December in the form of a six-month moratorium on all loans. The Kolkata NCLT also said creditors cannot classify Srei’s loans as bad and asked rating companies not to revise ratings during this period.
Earlier this month, the National Company Law Appellate Tribunal set aside the NCLT order and allowed banks to classify Srei Group’s loans as non-performing assets, the Hindustan Times reported.
The rating companies and creditors had challenged the Kolkata NCLT’s order in the NCLAT in New Delhi.
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